This is utter madness. Since when has "free" ever meant "tightly controlled by the government"? Regulation like this always locks in current competitors and business models. Hate Comcast? You just guaranteed them their infinite existence and profitability. They will be the Ma Bell of your generation.

New competitive models and technologies will now have to be vetted by government bureaucrats who will soon be captured by the industry itself. It literally always happens this way. How much innovation did you ever see in the landline phone business? My telephone at my birth in 1962 was identical to the one in my dorm room in 1984. Power companies? Water companies? Cell voice service? What innovation have you ever seen? What new competitors have you seen pop up to challenge the old guys? Only in cellular data has there been any innovation, and that is to date the one place in phone communications the FCC has not regulated with this model.

I am exhausted with people justifying these heavy-handed government regulations based on the good intentions of their supporters rather than the actual facts of how these regulations always play out historically. We will look back on this day as the beginning of the end of the wild, open Internet we loved.

I will say that folks can really be rubes. Playing on the fear of one narrow issue that would have been easy to legislate (that broadband companies might block or limit access to certain sites), the government used this niche concern to drive through a total takeover of the Internet. Way to go sheeple.

Update: Some additional comments I made:

This problem of blocking web sites is almost entirely hypothetical, and to the extent it has been used at all it merely has been a negotiating tactic between big boys like Netflix and Comcast who can take care of themselves. It could have easily been fixed with a narrow bit of rulemaking but in stead we get this major regulatory takeover.

Doesn't it bother you that this is a problem that could have been solved with a fly-swatter but instead the regulators demanded they be given a 16-inch naval gun. Don't you worry why they need all that regulatory power to swat a fly? Aren't you at all suspicious there is more going on here?

84 Comments

billysixstring:

Once the NN advocates finish patting themselves on the back and move on to other things, the ISPs will still be there lobbying for the specifics. They will be the ones making sure that the regulation keeps them in business. And when the Uber of ISP/broadband technology emerges to disrupt the industry, the ISPs will be their to fight for NN rules to apply to all. The UberISP may never emerge (possibly because the rules become so comprehensive) but if it does then the current Uber vs taxis fight will be small potatoes.

mx:

I've been worried about this too. It's a huge step and there's absolutely risk. But you're flat out wrong on the history of this action when you say "It could have easily been fixed with a narrow bit of rulemaking but instead we get this major regulatory takeover." The FCC tried to fix this with a narrow bit of rulemaking. The history is long, but I'll summarize some key bits.

Way back in 2005, the FCC issued its Internet Policy Statement. It stated that “consumers are entitled to access the lawful Internet content of their choice... [and] to run applications and use services of their choice.”

So in 2008, the FCC, after receiving complaints from the public, took action against Comcast for taking actions to deliberately interfere with peer-to-peer communications (which, like pretty much any network protocol, can certainly be used to transmit copyrighted works unlawfully, but also has numerous legitimate uses) by its customers. Such interference violated the Internet Policy Statement. The FCC censured Comcast for its actions and asserted jurisdiction over its network management practices under the Communications Act of 1934.

Comcast sued, and the DC Circuit threw out the FCC's order in a unanimous decision, finding that the Communications Act of 1934 did not give the FCC such authority.

So the FCC tried again in 2010, issuing a thing called the Open Internet Order. The Order required network operators to be transparent in their network management practices, not block access to lawful content ("subject to reasonable network management practices"), and not to unreasonably discriminate. Some of these rules applied only to fixed, non-mobile internet access service or were modified to give more flexibility to mobile carriers.

A month later, Verizon promptly sued the government, claiming the FCC exceeded its authority in issuing Open Internet Order. Fast forward a couple years to January 2014 and the DC Circuit sided with Verizon, throwing out the Order. The Court laid out pretty clearly what the FCC had to do. If the FCC wanted to regulate internet service, it had to treat providers as common carriers. That's the legal structure available to the FCC for this type of regulation.

So it's absolutely unfair to say that this could have been fixed with a "narrow bit of rulemaking." The FCC tried to do just that for over a decade and was fought at every turn by the major ISPs. It came down to Title II regulation or nothing, and a lot of people have been begging for more than nothing.

Personally, I'm not at all a huge fan of heavy-handed regulation of the internet, and I too fear where this could lead. However, I think it is absolutely critical to ensure that ISPs, who occupy monopoly positions in many local markets and are also pay TV operators and telephone companies, cannot use their positions as gatekeepers to give themselves privileged positions in the market for online services.

Dan Wendlick:

I disagree with your statement that it was Title II or nothing. The FCC could have turned the issue back over to congress and requested an amendment to the Communications Act. In fact, they did, and they were rebufffed. So they then shoehorned the internet into the existing regulatory scheme.

mx:

Yes, the same Congress who are about to make Homeland Security employees work without pay was likely to act here. Or do you think the same Congress who have taken millions in donations from cable and telephone companies could possibly improve the situation? Congress already gave the FCC the authority it needed under Title II.

NL7:

My interpretation of this fight is that some people would greatly prefer a significant increase in the market power of existing internet providers and a substantial decrease in the potential for innovation, in exchange for a layer of governmental authority over the power those companies exercise and the promise that the companies could not substantially worsen service from the current standards except with tacit approval of the government.

In finance terms, it's analogous to a collar. You sell off the upside potential of a stock and simultaneously purchase protection from the downside potential. You freeze your position at its current level, so changes to the underlying stock are mostly not your problem or your benefit. Depending on how tight you make the collar and how generous you make the downside protection, you can have a net cost overall (particularly with the transactional costs). Many people are prone to this sort of thinking, and behavioral economics pretty much accepts the notion that a pervasive bias overweights losses relative to gains (i.e. the gravity of losing $X is more significant than the importance of gaining $X).

That's pretty much the tradeoff here, except that the collar is not so certain and well-defined as financial options. Some people, particularly those with negative views of ISPs like Comcast, believe the future downsides are serious or imminent, and the potential future upsides are few or speculative. Given the tradeoff of speculative gains to protect against imminent harms, this sort of regulation sounds very appealing (unless you are already libertarian and prone to distrust regulations and bureaucrats).

Of course, the problem is that there is no provision for people who don't wish to make the same tradeoff. If you put a collar on your stock, I'm still free to trade in my stock. But if you freeze the ISP industry structure in time today, I can't go to an unregulated, riskier ISP industry structure. I'm necessarily locked into your choice because the regulation is automatically depriving other people of any alternative choice.

mx:

Huh? That's kind of what happened. Apple initially reached an exclusive deal with AT&T to sell the iPhone in the US and AT&T was the launch carrier. That collaboration led to features like Visual Voicemail as well.

The fact that AT&T possessed the intuition of a tadpole by failing to predict the extent of the increased load on its network doesn't change anything.

mvetsel:

What blithering idiots. Look at that moron in the photo pounding on the upside-down Home Depot bucket drum. Asking the FCC to "free the internet" is like asking Putin to liberate the Ukraine, like demanding that Hitler liberate Poland from Stalin or vice versa!

Finally, the FCC is taking over the internet to "free it". What I find especially evil is that Google has been self-servingly pushing this. Now that the FCC has "freed" the internet, I want them to take the next logical step and classify internet search providers as utilities to prevent them from favoring searches based on the criteria that maximizes their profit.

Currently, there is no federal agency to keep internet search free and open. Google could favor their partners or advertisers, or even worse disadvantage women, people of color, gay, bisexual, transgender and differently documented Americans in their search results.

In fact, without federal oversight, how do we know that they aren't ALREADY doing this? Internet search is our new department of public records -- do "we" really want that in the hands of on of the words most profitable corporations?

Even if you trust completely Google's pure intentions, without FCC oversight how can you be sure that they aren't UNINTENTIONALLY furthering the disenfranchisement of these marginalized groups?

TripAZ:

If I was an ISP, I'd being looking into going back to charging per Megabtye, instead of flat monthly fees. At least until they outlaw that as well. The heavy-bandwith users would quickly slow down on the streaming services.

NL7:

This would be treated as tantamount to a war crime by masses of angry customers. Might as well spend your advertising budget to sponsor the defense attorney costs for the next three high-profile murder defendants (e.g. "OJ Simpson's dream team: brought to you by the wife-killers at Time Warner").

Once they get locked in, the current companies aren't really in any danger, but they are also unlikely to scramble for profits. Just slow and steady printing of money as captive customers send in the checks. No sense rocking the boat and alienating customers and regulators. You need customers for the areas where you overlap with other incumbents, and you don't want to generate heat for regulators that they will have to refocus on you. The ideal situation is to relax and count your money, and try not to antagonize anybody into upsetting the new order.

TripAZ:

FelineCannonball:

Thanks for the summary.

As far as I can tell it's exactly the lack of competition (some inherent, and some regulatory-caused) that is the problem. You wouldn't really have to worry about net-neutrality if these monopolies didn't have control over large swaths of "the last mile," or other bottle necks in the system. Without it, competition and market forces would naturally keep these companies from serving as gatekeepers. If given a choice, consumers don't want filtering, and content providers don't want to be extorted. Net neutrality is a natural result with significant competition.

I'd just say the ability to extract tolls is not a useful innovation. It is a bit like defending the free market right of feudal lords and self-described 14th century custom officers to put up forts with cannons on the Rhine.

I'm not sure what the solution is but I'd look a little deeper and not pretend that new net neutrality rules are the beginning of government interference in the market or the origin of the problem. The regulatory system (and lack of anti-trust enforcement?) that led to current market domination is what created the problem the FCC is now trying to fix.

FelineCannonball:

Nothing keeps them from doing that now or in the future.

In fact, it's pretty universal to have tiered service based on download/upload speed. And many companies claim the right to throttle service down for users after caps are reached. Read the fine print on your agreement.

The current system works for them. The future system for end-users will look the same. They get to overcharge all the grandmas that only check their email once a week, encourage heavy users to buy the top tier without scaring them away with detailed metering, and automagically throttle users who are on the upper end of the bell curve. What they won't get to do is to extort content providers one by one with threats of throttled service.

The problem of clogged internet tubes (that can only be solved by extorting netflix) is a fake problem hyped up so that they can argue for extorting netflix. Comcast makes shitloads of money. And they're using that money to pay dividends, not reinforce that infrastructure they say is getting overtaxed. I don't really blame the rent-seekers, but to classify this type of oligarchy business model as innovation is a stretch.

LoneSnark:

Yes, it was not Title II or nothing, for right now. Right now is not forever. Netflix, a major corporation, paying Comcast a nominal fee to help deliver its mountain of data is not a real problem. It seems the new FCC rules are going to be fine with Netflix paying, so they're not here to fix that problem. Which means we're all here with a solution to a problem that doesn't exist yet. Well, if and when it ever becomes a real problem, Congress would act to easily and narrowly fix it. Title II would never be the right answer.

mx:

Well said. While there's certainly room for more competition, the lack of competition is, to some extent, inevitable. Building an ISP requires a fairly large capital investment and utility-like construction: the costs of passing a house aren't much less than the cost to connect to that house. Urban areas provide more flexibility for new entrants in terms of wireless options, metro ethernet builds, the cost-effectiveness of wiring multi-unit buildings, etc..., but greater difficulty with permitting, underground construction, and street closures. More rural areas require much greater distances to be covered to reach each on-network location. Even so, the majority of Americans still only have a single option that provides broadband speeds and that's unlikely to change in the immediate future.

With more competition, transparency would still be required, but customers could much more easily vote with their feet if they didn't like the policies and practices of their chosen ISP.

Rangi:

From NPR's summary of the new regulations: "Congress requires the FCC to refrain from enforcing – forbear from – provisions of the Communications Act that are not in the public interest. The proposed Order applies some key provisions of Title II, and forbears from most others. There is no need for any further proceedings before the forbearance is adopted. The proposed Order would apply fewer sections of Title II than have applied to mobile voice networks for over twenty years."

It's too early for triumphalism here, but this sounds like the FCC is at least trying to use its Title II powers as narrowly as possible to solve the actual, existing problems that people were demanding net neutrality to fix.

LoneSnark:

As to the assertion that cellular voice is working so well under Title II that cellular data will be fine with it too...This completely ignores the technical linkage between the two. There was no competition for Voice and the smaller carriers never bothered becoming big carriers because they relied upon the FCC to provide them affordable roaming agreements, which locked the system into only really having two real carriers, everyone else just built towers where it was profitable and relied just on the two big carriers to build the nation's real voice backbone. But, given the Title II price controls, the two big carriers were in no rush to wire up the whole country, since if they built a new tower, they would only get to charge the FCC regulated rates for all their competitor's customers to use it. Well, along comes cellular data, and the two main carriers under Title I proclaim a roaming fee for data that is astronomical, because they can. Suddenly, building towers in the middle of no-where to serve data is insanely profitable, be it to your customers or those paying your high data roaming fees. So the two major carriers built networks far and wide, bringing their roaming partners along for the ride. Great voice coverage was just along for the ride, as towers built to serve price unregulated data also served price regulated voice. The smaller carriers followed suit, as high data roaming fees have sent them all scurrying to build their own networks large enough to operate independently. MVNO customers, myself included, already live in a world without to roam. Coverage today is far wider and denser than it has ever been, only because the price for data was unregulated.

Now it seems cellular data is going to be regulated...so much for sustaining four competitive carriers.

LoneSnark:

No, they are trying to use their Title II powers as narrowly as required to survive both a federal court challenge and a court of public opinion challenge. Once they survive those two challenges, they are free to change their mind about what powers are not "in the public interest".

FelineCannonball:

I'm no expert, but I imagine a lot is inherent. In our (very) urban area we're starting to get competing fiber optic options. The city has 13 provider options with 5 over 10 mbps -- but even here Comcast has a 4x edge on speed on the high end. In most places I've lived I've been stuck with a single provider for broadband.

I'm not sure if there are business school classes on captive markets and the efficiency of their operation sans regulation, but I'd be interested in someone trying to explain how that works. It seems to me there is a role for some sort of limited regulation.

In the long term I'd like to see any barriers to competition removed, and I'd guess regulations that encourage/force competition and transparency (perhaps treating trunk fiber-optic lines as utilities) are going to create a more efficient and innovative broadband system than regulations which simply try to micro-manage monopolies.

Titan28:

FelineCannonball & mx,
You both seem to know what you're talking about. Yes, the FCC tried a lighter approach to what I would still call a non existent problem, and was rebuffed. You seem to take the FCC at its word. Maybe once upon a time the FCC was peopled by citizens who knew something about the communications industry; it is now, like everything else in DC, a political plum job. You imply the FCC was acting in the best interests of all the parties involved, functioning as a referee. Were they? What do you make of the idea that the bill is 200-odd pages long, and no one outside the FCC was allowed to read it? Does that pass any kind of smell test? And what about Obama's meddling? All well and good? Again, I agree there is a history here, and on the technical points you both make sense. But wasn't the FCC the organization that floated that trial balloon about monitoring how networks covered the news, about regulating how what they called news came to be called such, and about contemplating some kind of fairness doctrine in re news coverage? You don't in any way see this as a naked governmental power grab? Is it possible you all are doing a forest and trees thing here? Put another way: I don't trust a single thing the Obama Admin does. You do?

FelineCannonball:

I have a problem with a lot of laws, rules, and regulations. The "fairness doctrine" was a thing, enforced for decades from 1949-1989 when it was finally killed. Efforts to bring it back have fallen pretty firmly on their face. There's a lot of things that don't make much sense or make things inefficient.

The process for administrative rules is pretty straight forward relatively clear to lawyers. After they are published there will be a comment period and once finalized, those impacted (or allowed by legislation) will be able to challenge them in court. They are supposed to be based on the interpretation of laws congress passes and follow long-standing set of precedents based on Administrative Law. There are ways to fight them in court and if a majority of congress finds them egregious they can pass a new law clarifying their intent. Things tend to move in big jumps and then get revisited decades later and pushed a bit in a different direction. It's a pretty crappy system. My wife's a lawyer, so I've learned to have a little more tolerance for it. But I do think it's pretty inefficient and leaves in place some misguided policy that has long term negative impacts.

I obviously haven't read the proposed FCC regulations. I'm not a "sky is falling" person most of the time, but I may not really like the details.

My point above is that the FCC isn't really starting with a clean slate. There are economic, structural, and regulatory processes that created the current marketplace, and you can't pretend like the new regulations are the first FCC foray into it. Some laws have clearly decreased competition in the marketplace. And I'd argue there may be ways to encourage transparency and competition that solve perceived problems better than solving them by fiat.

mx:

As an aside, one of the things the FCC is proposing to do here is to improve access to utility poles for ISPs. This would help ISPs expand more quickly and at lower costs, helping to stimulate more competition, at least in areas where utilities haven't all been buried underground.

Nimrod:

I told her: 1) your DSL bill will probably go up, 2) you're much less likely to ever get any alternative (like uverse running fiber to the curb), 3) quality of your DSL line (which is already pushing Shannon information theory limits on the overly long and smaller than normal gauge copper loop) is unlikely to ever get better because the existing provider is even less likely to perform upgrades now.

But the ignorant hipsters in the city won't have these problems so they couldnt care less.

FelineCannonball:

"per share"?

But you're point is good. What they would actually be doing is creating a fast-lane that's both in Comcast's and Netflix's interest. And then once that happens . . . you basically have a tiered internet. A tiered internet where every content provider decides what toll they want to pay the oligarchs. Extortion might be hyperbole, but it's an artificial filter that they'd pop up to interfere with packets. Pay the fee and get through the filter. And the whole "innovation" is based around reading packets and slowing stuff down.

Jess1:

per share is a common expression. In this case, it removes any implied sympathy for one billion dollar firm vis a vis another.
Let us assume that they did decide to work together - with a pay for their services, get better performance plan... What, exactly would be wrong with that?

Jess1:

mx:

Per share is an expression that renders your comparison meaningless. Comcast could split its stock or Netflix could reverse split its stock and the situation would be reversed.

To use actual real numbers that mean something, Comcast took in $17.7B in revenue in the last quarter, of which it booked a profit of $1.93B. Netflix took in $1.48B in revenue for a net income of $83M. Yes, both are large corporations. But Netflix isn't in the same league as Comcast.

And this isn't simply about Netflix and Comcast. It's about ensuring that the next Netflix can be successful without being subject to a veto power by ISPs.

FelineCannonball:

1) a non-neutral network is less efficient overall and broadband carriers already have proven revenue streams from consumers. They can charge per mbps or total data or put caps on individual consumers if they want and pair that with network maintenance and upgrade costs, desired profits, etc. There is no problem with the current system.
2) the innovation isn't about speeding up broadband performance for a particular company. It's about agreeing to stop slowing it down, and/or slowing down the performance of competitors. The innovation is designed inefficiency. Basically changing the competitive playing field for a fee.

Not everything you can make a handshake on is an improvement in competition and long-term positive innovation.

Matthew Slyfield:

Jess1:

If indeed a "non neutral" (whatever that means) network is less efficient, then they will fail sooner, and be superceded by more efficient networks, all without the heavy hand of the federal government.
On the other hand, if there is no problem with the current system,isn't the best response to the FCCs actions a hearty "f***off"?

Worrying about what some non specific ISP might do is hardly reason for all of this...

Matthew Slyfield:

FelineCannonball:

see below.

The whole reason Comcast and Verizon are able to pull off this sort of crap (they have already started, BTW) is that they have no real competitors.

IMO, Net Neutrality would probably be fairly superfluous if there was actual competition in a transparent marketplace. There are fairly basic forces behind content providers not wanting to pay tolls, consumers not wanting random websites throttled, and everyone wanting switches and routers that aren't purposely turned off. Net Neutrality would basically be the default if all the players had their choice. We'd just drive around the toll booth.

"The heavy hand of government" has played at least some small role in decreasing competition in the past. The real long-term solution would be to get rid of barriers to competition and let technological innovation proceed so that no one company can play gate-keeper due to historical accident.

mx:

Netflix was repeatedly subject to network congestion by multiple ISPs refusing to provide adequate capacity to the point that the service was basically unusable for some customers, especially at peak hours. When Netflix made payments to the ISPs concerned (payments that vastly exceeded the cost of any necessary network upgrades), these bottlenecks went away. That said, here, we're talking specifically about paid peering, which is an especially complex area and not the entire focus of the FCC's new rules. More broadly, nobody is saying that Netflix is small and helpless, but rather that ISPs can and have abused their monopoly control over the last mile of internet infrastructure to hurt competition and attempt to control who can compete online. A few additional examples of things that actually happened:

- Various ISPs, including Cox and Comcast, blocked access in the 2000s to VPNs (virtual private networks), calling it a business service. VPNs are commonly used to access corporate networks remotely. While VPNs are just another internet service, no different to the network from web browsing or email, ISPs demanded substantially higher prices for unblocked connections.

- Madison River Communications, a smallish rural phone company, blocked its internet customers from using Vonage, an IP-based phone service that offered an alternative to Madison River's own telephone service.

- Comcast interfered with BitTorrent (which can be used to transmit both legal material and for copyright infringement) by deliberately tampering with connections between its customers and third parties for years, going so far as to lie to the public and claim that they were doing no such thing.

- AT&T blocked FaceTime on iPhone devices from working over cellular connections unless users had certain more expensive data plans. They did so even though the data use would count toward user's data plans regardless, casting doubt on AT&T's arguments about the need to reduce bandwidth usage. Previous versions worked over Wi-Fi, allowing users who did not have eligible plans to supply their own internet connections and use the feature, but this was blocked on AT&T.

- Apple blocked Skype on the iPhone for several years. It did so because of a secret agreement with AT&T not to allow VoIP services in the App Store. When Skype was allowed, it could only communicate over Wi-Fi, not cellular networks. After the FCC and others started asking questions, AT&T relented and Skype was uncrippled.

- Companies exempting their own services and those of their business partners from data caps. A single HD movie stream could more or less consume a cell phone or tablet user's 5GB mobile data cap. Even with the larger caps on fixed broadband systems, streaming high-resolution 4K video can eat up a good portion of a data cap. Gizmodo estimates that streaming a single season of House of Cards in 4K (not something unreasonable to do over the course of a month) would use 1/3rd of an AT&T U-Verse user's monthly cap. By exempting their own services, ISPs give an advantage to their offerings over competitors.

(And as for investment advice, I wasn't giving any. Earnings per share is a perfectly reasonable metric to examine when deciding whether to invest in something. If you're simply comparing two companies in total, such as whether Netflix or Comcast is bigger, looking at EPS is about as meaningful as looking at earnings per freckle on the main receptionist's face.)

Jess1:

So in your world, the seller of a service has no say over what that particular service is.
The rational response to any of your "examples" is "So What?" (BTW, the MRC example so often trotted out was limited to the small town of Mebane, NC for less than 12 months, and was resolved under then current regulation - hardly requiring MORE Federal control)
Now if you were to argue that local/regional carrier/isp agreements are a bad thing, then you would have a point worthy of discussion.

Jess1:

How to now square the VOX commentary this AM on a DC outlet saying that this will "likely" raise regular user's rates...
It seems the complaints are entirely of the category "I don't want to pay more and am willing to use force".
Brilliant.

ano333:

"It could have easily been fixed with a narrow bit of rulemaking..."

Didn't the FCC's attempt at "narrow" rulemaking end up getting overturned by the court? Isn't Title II regulation just a response to the fact that the court would not allow the FCC to make that "narrow" rule?

I have enjoyed this blog for some time now and I ask these questions in all seriousness.

Jess1:

Didn't the FCC's attempt at "narrow" rulemaking end up getting overturned by the court?"
Which rule? The handful of consent decrees seem to have been upheld, while the other issues were correctly decided to be outside of the FCCs reach. I still have yet to see an explanation of what "problem" required the "16 inch gun" of Federal power.